first time home buyer

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As you get ready for your home purchase over the next few months, there are a multitude of decisions and timeline milestones that you will want to be prepared for!    

 My goal is to provide you with great information about buying a home. I take pride in making sure all the buyer's that I work with are educated and make informed decisions along their journey. I want this same experience for you!     

Let's get started!     

The first topic to consider as you are looking to purchase your home is a *Focus On Finances*    

The Loan Officer will look at three things when establishing your ability to purchase. Credit, Income, Assets.     

CREDIT - Make sure to take a look at your credit currently. Try to avoid excessive credit inquiries between now and when you are going to apply for your loan. Through April 20, 2022 you can get a Free Credit Report from Experian, TransUnion & Equifax.     

INCOME - Remember this, if you are a salaried employee you will need to be in your job at least one full year. Commission based earnings need to be there for 2 full years. **If you have changed jobs recently but it was within the same field that will still count towards the amount of time in the job.**     

ASSETS - Cash in the bank, retirement accounts, and all of your other assets will be considered when the Loan Officer inputs your information in the automated underwriting system. If you keep cash under the mattress, now might be the time to get it in the bank so it will show your true net worth!

Before you go shopping for homes, you will want to know the purchase price that you qualify for and the corresponding monthly payment that will go along with that price.     

The Loan Officer will be able to tell you based on your financial position, the amount you make and consulting with you personally on what your goal monthly budget will be, what price range they will recommend for you and give you what's called a PreApproval.     

I can help you during this time using basic calculations on a rough price range for us to establish your online search. This way, as you continue to receive listing alerts from the website you will have a ballpark idea of which price range is going to be best for you.     

What we CAN do at the moment is establish your Search Criteria 

1. Type of Home? (single family, townhome, condo) 
2. What towns or neighborhoods do you want? 
3. Beds/baths? 
4. Any Must Haves? (pool, fireplace, go-kart track :)

You will want to start getting yourself mentally prepared for the budgeting items that come along with your home purchase ... Let's review those now!

1. The first time that money is going to come out of your account towards your new home will be your Earnest Deposit.

This is a portion of your overall down payment that gets paid at the time of signing the contract that will be held until closing day. These funds, often called, "good faith" money. It means that you are a serious buyer and you will diligently pursue loan approval and move towards closing on the home. Generally, this amount is $500-$2500 depending on the price of the home and is negotiable between buyer and seller.

2. The second time that money is going to come out of your account will be to pay for the Home Inspection.

The Home Inspection ( I like to call it the Home Education) is a day that we will uncover everything that could potentially be considered a defect in the house. I'm not an inspector, you are not an inspector ... so we should not be expected to make a complete assessment of a property after touring it only once! We will meet the home inspector at the property and he will assess every inch of the house. Roof, foundation, windows/doors, electrical, plumbing, exterior, interior and more. He/she will generate a full report with pictures and descriptions which we will use to negotiate repairs (more on this in a later email as well). We can talk about the cost of various inspectors when the time comes.

3. The final payment you will make will be the Down Payment and Closing Costs when you actually go to settlement and take possession. Next email, I'll go over these two payments in detail because it's the largest payment and oftentimes the most confusing!

I find these two are the most confusing aspects of the finances so I wanted to give them extra attention here...

1. Down Payment

There are several loan types:

FHA = 3.5% Down Payment

Conventional can be 5%, 10%, 20% or more!

Let's take a 5% Conventional loan as an example ... If you are buying a $200,000 house, your down payment will be $10,000. Simple enough.

2. Closing Costs

These are the other costs associated with purchasing outside of the down payment. Some examples include:

1. Prorated Taxes - Lenders collect several months of taxes at closing to fund an escrow account. Throughout the year they pay your taxes & insurance on your behalf.
2. Title Insurance - Every home purchased with a mortgage will require title insurance. They handle the majority of the logistics for compiling the legal documents required to close and provide you with a Title Insurance Policy to protect your ownership in the property for a time period after settlement.
3. Lender Fees - When you obtain a mortgage, fees are paid out to the company that packages all of the financial documents needed to issue the loan.
4.  Homeowners Insurance - Often you will pay a portion of your homeowners insurance premium for the year upfront at the closing table.

All of these can be estimated by your Lender when obtaining your Preapproval so you can truly understand what your total out-of-pocket cost is going to be at settlement day.

Coming back to the $200,000 purchase example ... if you take the 5% down payment of $10,000, closing costs could be in the range of $8,000! That means our total out of pocket will be $18,000.

*HOWEVER*

There is a way to reduce this amount by creatively structuring our offer. We can ask for something called a Seller Concession which would reduce your closing costs burden and make it more affordable! We'll touch on this later : )

So what is this anyway?

From our last example, our total Settlement Day costs were going to be $18,000 ($10,000 Down Payment + $8,000 Closing Costs).

Let's say for example, you only wanted to pay $15,000 TOTAL. We would need to ask for a $3,000 

Seller Concession. And here's how it works:

Instead of offering $200,000 for the house, we would offer $203,000 with $3,000 Seller Concession. The seller will walk away with exactly $200,000 ($203k - $3k = $200k). You will have that $3,000 applied towards your Closing Costs reducing them from $8,000 down to $5,000 ($8k - $3k = $5k) for a total Settlement Day payment of $15,000!

But where did that $3,000 go?

We effectively rolled it into the life of the mortgage and financed it! The catch is your mortgage will now be based on a purchase price of $203,000 instead of $200,000 so your monthly payment will go up just slightly. Most people have the income to cover a very small increase in monthly payment but do not have the savings to cover all of the closing costs. Plus! You have furniture to buy, projects to do, etc. and keeping some of that cash in your pocket is important.

Imagine this ...

You have narrowed your Search Criteria, you obtained your Mortgage PreApproval, we've gone out and toured homes and you found the one! Now you are ready to begin the negotiation to make it yours!

Let's touch on submitting a complete OFFER to the seller:

1. The most important - The Purchase Price - When we are deciding what to offer the seller, one thing I don't care about is ... ready for this? ... THE LISTING PRICE! I'll let you in on a little secret .. Do you know how the seller and the listing agent came up with their list price? They made it up!

Here's what I DO care about:

-- What other homes, in that same area, sold in the recent past that are similar to this home?

Were they bigger?

Were they in better condition?

Did they have a more appealing location?

-- All of these factors into our decision of determining Market Value for the home you are looking to buy. Once we know how much we truly think the home is worth THEN we will have a discussion if we think it makes sense to offer below, at, or even above list price! Going above list price is not a bad thing if we think that the market value is higher!

2. Earnest Deposit - Remember in one of our first emails we mentioned this? Generally $500 - $2500 depending on purchase price.

3. Closing Date - When do you ACTUALLY want to take possession of the home? Get those keys!

4. Financing Terms - Cash? Conventional Loan? FHA Loan?

5. Inclusions/Exclusions - Keeping the window treatments? Patio furniture? Certain Appliances?

Our Proposal to Purchase outlining these terms as well as the Mortgage PreApproval need to be submitted together to the Listing Agent so they can present it to the seller. They will either reject, counter, or accept our offer!

Once offer terms are accepted by both parties, contracts will be drawn and then the real fun begins! 

Next, is the Home Inspection & starting the loan approval process...

You have successfully made it through the Offer and Negotiations and now you are UNDER CONTRACT.

This period of time is often about 30 days but can be longer depending on financing types and other factors. So what happens during these 30 days when you've agreed on terms and are awaiting settlement day?

First, the Home Inspection period begins. Oftentimes, this is a 13 calendar day period where the buyer has the right to hire a licensed Home Inspector to come out to the house and make a full assessment of the quality and condition of the property and inform you if there is anything that needs to be fixed.

The inspector will generate a full report which we will review together and determine a list of items that we want to ask the seller to fix. We are looking for Material Defects to the home ... NOT cosmetic upgrades. Just because the carpet is purple is not a defect! That's your personal preference. If there are stains and holes in the carpet though.. that IS grounds for a repair request.

The seller will decide which of the items (if any) they will fix and you get to decide if that is satisfactory to you. Here is the great part about the Home Inspection ... If we find problems with the house that the seller is unwilling to fix or compensate us for and you are not comfortable moving into the home, you are allowed to cancel the contract and get your earnest money back!

I always say, getting under contract is easy .. getting through the home inspection is the hard part!

This has been A LOT of information. Take a breather .. you're almost there!

After the Home Inspection is over there are only a few final items that need to be addressed to get you to closing day.

Once we have that fully signed contract, the Mortgage Company started their process of underwriting the loan. The Title Company has started their due diligence for preparing all of the necessary paperwork with the county and municipalities to facilitate a smooth closing. You will be in close communication with the Mortgage Company to assist them if there are any miscellaneous documents they need from you in order to effectively and efficiently complete their process.

The Mortgage Company is also going to have the home Appraised. This is another great protection for you, the buyer. Essentially, they are going to send an Appraiser to the home who will give a neutral, 3rd party, objective opinion of value for the home. If the appraiser does not think the home is worth what we have offered, we will need to reduce the purchase price of the home.

There are 4 possible outcomes for a Low Appraisal:

1. Seller agrees to take less money for their home. (they don't like this!)

2. Buyer and seller agree to split the difference in value.

3. Buyer agrees to make up the entire difference in value in cash. (not great, but happens)

4. The Buyer decides to WALK AWAY from the deal if an agreement is not reached.

Ultimately, the decision is YOURS. The seller can not force you to pay the difference in cash. We will negotiate with the seller to determine the most fair outcome that is agreeable to both parties. If an agreement is not reached, the deal stops and the contract is dissolved, you get your Earnest Deposit back and everyone goes their separate ways.

I didn't mention what happens when the appraisal is High or comes in at value because the deal moves right along if that's the case!

Next, Closing day!

You're almost there!

It's been a long journey, you've gone through some ups and downs but we finally made it to Closing Day!

The day before closing (or morning of) we will head to the house together to perform a Final Walkthrough. We want to make sure nothing has happened to the house since the last time we saw it (holes in the drywall from moving out, tree falling in the backyard, water in the basement, etc.). Before you sign those papers you want to make sure it's exactly right!

We will go to the predetermined settlement location. Most often, the Title Company's office. As the buyer, you have the right to select the time and location of closing which we will discuss in more detail as we actually get closer to Closing Day.

Three days before closing the lender is going to send you Closing Disclosures. This will outline All the closing documents & EVERY PENNY in the transaction that is transferring hands between all parties and you will know exactly how much you need to have your Certified Check made out for and to whom.

At closing, you will be the busy party signing a majority of the documents. The bulk of what you sign is called the Mortgage Package which outlines all the terms of the loan you are obtaining. You will have a chance to review all of these documents before you ever get to Closing Day so you'll have plenty of time to digest and understand them ahead of time.

The Title Clerk will gather all of the fully signed documents, the Mortgage Company will wire the funds, the Seller will be paid, the deed will be transferred and just like that ... You are now a HOMEOWNER!!!

This whole process can take anywhere from 20 minutes up to about an hour depending on if there are any small discrepancies that need to be accounted for at the Closing Table.

Only one more Step to go and then you will be fully prepared to start your journey!

It has been an absolute pleasure to guide you through the steps from where you stand today to the goal of owning your Home!

Let's review where we've been:

Step 1: Focus on Finances

Step 2: When am I ready to tour homes?

Step 3: What should my budget look like when purchasing a home?

Step 4: What are Closing Costs?

Step 5: Seller Concession and Reducing Closing Costs

Step 6: The OFFER

Step 7: Home Inspection

Step 8: On to Closing Day!

Step 9: Closing Day

Now that you have a blueprint for the major milestones, I want to truly emphasize something ...

Every. Person. Has. A. Different. Journey.

Here is a great metaphor as we wrap up...

We are about to go on a journey together. You could just start driving and figure it out along the way, making wrong turns, getting lost and frustrated. I guarantee your home buying journey will start to feel like a nightmare!

Instead, let's map out your plan. Let's figure out whether you want the scenic route or the most direct. I'll be in the passenger seat with the updated GPS of the market, helping guide and inform you of the best possible alternatives.

But ultimately...

YOU are in the driver seat. You are the one controlling the steering wheel of the direction we go. Your foot is on the gas when you are ready to move forward. Your foot is also on the brake, when you need to slow things down and take a break.

At the end of the day, this is about you! I am here as a guide, resource, and friend from start to finish.

I am always here to answer questions! I take pride in making sure the people I work with have an advanced knowledge of their home buying process so they know what to expect and can make smart, informed decisions along the way. We can only get you there if we have open, honest discussions about your needs and concerns.

karihalferty@kw.com - Personal email     

918-914-0235 - Personal cell